ET.UPDATE: BP Dividend Cut Seen Unlikely Despite Oil Spill Of
DOW JONES NEWSWIRES LONDON (Dow Jones)--A cut in BP PLC's (BP) dividend is unlikely despite the soaring cost of cleaning up the oil spill in the Gulf of Mexico and the potentially huge liabilities the company faces for the environmental disaster, investors and analysts said Friday.
"On what current estimates are of [spill-related] costs...BP probably doesn't need to do anything with the dividend," said Colin Morton, fund manager at Rensburg Fund Management.
The cost of the cleanup so far, estimated by BP this week at $760 million, is hardly problematic for a company of BP's size, Morton said. "Even if it ends up being $5 billion or $6 billion, which would probably be over a period of three or four years...in pure financial terms, at the moment it's not really significant," he said.
A BP spokeswoman said the company doesn't comment on its dividend policy.
Oil has gushed in unknown quantities from a damaged well in the Gulf of Mexico for more than a month and significant amounts of crude have begun to contaminate beaches and marshes in Louisiana. BP will make an attempt to seal the well this week, but if this and other plans fail, the only way to halt the flow may be to drill a relief well that could take two more months.
The uncertainty over how much oil is being spilled and how long it will continue, makes for a wide range in estimates of BP's total liability. In addition to the $760 million BP has spent so far, the company is receiving thousands of claims from fishermen, restaurateurs and other people whose livelihoods the spill has affected.
BP could also face maximum civil penalties of $1,100 for each barrel of oil leaked, rising to $4,300 a barrel if gross negligence were proved to have caused the spill. This liability could range anywhere between $220 million and $60 billion in the best- and worst-case scenarios, according to analysts at Canaccord Genuity.
Most industry analysts acknowledge the tremendous uncertainty, but say the most likely set of outcomes is affordable for the company.
"We think the balance sheet could stand close to $25 billion of additional cost before pushing gearing above BP's target levels. This gives us some confidence in the dividend given the full liability will take some time to emerge," said Collins Stewart analysts in a research note.
"BP can easily absorb $20 billion of costs before you start getting worried about this," said Panmure Gordon analyst Peter Hitchens. Furthermore, "BP will tend to view this as a one-off, rather than a deterioration in its performance," that could affect the long-term health of its balance sheet, he added.
However, even if a change to the dividend is unnecessary from a purely financial point of view, there are other factors that could come into play, said NCB Stockbrokers analyst Peter Hutton. "Politically it might be sensible for them to share the pain," by making a voluntary cut in its payments to shareholders, Hutton said.
Transocean Ltd. (RIG), which owned and operated the rig that exploded and triggered the oil spill, has already drawn flak for announcing a payment of $1 billion to shareholders as the disaster was still unfolding.
"It might not look very good if [BP] was paying out billions of dollars to shareholders," as the livelihoods of thousands of people on the Gulf coast suffered, said Rensburg's Morton. "Will the company do something with the dividend as a gesture? I don't know the answer to that," but it is probably not likely, he said.